Through responsible credit management, my credit score is ~750 and I got offers for credit cards with an 12 month intro 0% interest rate on the first $20,000 I borrow.
What is the most riskless and profitable arb that you would do? I received multiple offers so let's raise that to $50,000.
Nothing. Frankly, one of the most important things is having accessible credit lines available to you at all times regardless of whether you need it. Your credit score matters quite a bit and having a really high score separates you from the vast majority of the population. Is it a huge deal? No. But I guarantee that when shit hits the fan again and people are trying to borrow, that gives you at the very least the perception that you are a better credit risk than the next guy. It's a score that is much easier to keep high than to build back up. Sure, you can try and use that 0% to buy stuff you think you can resell but anything else your risk to the downside is probably much higher than any upside you'll have currently.
And carrying a larger balance on the card will tank your score right? Carrying multiple large balances on multiple cards will hurt it more, if I understand how they determine credit scores.
my understanding is that as long as you make the minimum payment due, 'carrying balance' does not hurt your credit directly... but it may hurt indirectly if you jack up your credit utilization ratio.. This, of course, assumes you have 0% interest
Not exactly correct. Part of the FICO formula is what % of your total credit is being used, thus it remains ideal to keep utilization down to single digit %'s. If your cards start reporting 65% utilization your score will absolutely go down, and depending on the rest of your file it could drop more than most think.
On top of that above your credit card issuers also constantly soft pull your reports to make sure nothing has changed to raise your risk profile. You start carrying high balances constantly and it can lead to the credit card issuer to review and possibly take action on your account (reduce credit limit or in some cases close the account entirely).
So, even if you make minimum monthly payment on time your score will take a hit in carrying balances like that.
Thanks for clarifying...
My strategy to avoid a high credit utilization ratio has been to get a few cards (>5) that work best for me (rewards-wise) up to the point that my total credit limit is >20X of the amount I generally spend in a billing cycle.
Of course, it is imperative that one is a conscientious and judicious spender to gain any benefits from this approach in the long term.
You still need to make monthly payments on your balance, and your question statement assumes cash advances are also included in the interest free rate, which is not always the case. Also cash advances are usually ~50% of your total credit limit, so it would be less than what you're looking for. So you cannot really tie up all of the money the entire time, since you still need to make those payments. But CDs the length of time for a dollar amount you can handle being tied up, is going to get you the greatest "riskless" profit. ~750 credit score is good, but like the poster above, its not that big of a deal.
Also, take a quick look at cash advance rates on credit cards versus a 6-month CD.... haha.
Right, just have to be really careful that there are no fees/interest charges on withdrawing straight cash advances on your CC. There are forum's out there, i've looked at them before explaining how people do it. Best bet if that doesn't work out is to open a credit account, take advantage of the promo reward dollars ($100 bonus cash after $1000 in purchases over 90 days or whatever) and use it like a normal credit card.
I used to do this with credit cards + lendingclub. Its a long story. Would not recommend anymore for a variety of reasons (lower quality loans, lower spreads for a given level of risk, and extremely low liquidity).
Ultimately, I realized that churning cards is much more profitable AND completely riskless.
You should visit flyertalk to go down the rabbit hole.
Ditto on flyertalk big time.
I mean if I already have the credit cards approved for 0%, what's stopping me from borrowing 50k @ 0 and put it in a high yield FDIC insured savings account? Why do I care if my credit falls to 700 for 12 months if it just bounces back when I unwind the trade after a year?
I'm not tapping any credit in the next 12 months and any cashflow I need I can finance from my own pocket and future paystubs.
Sounds like nothing is stopping you then!
I think that makes sense with current interest rates. The best FDIC insured high yield savings accounts pay 1% tops. Maybe in a year or two the economics might change.
You are viewing this as a trade and this is far from one. Whatever money you gain from puting 50K in a FDIC insured savings account will be far less than the money you will have to pay when need money in the future and have to pay a higher rate because of lower credit. You dont just simply return the money and your credit score pops back to where it was. High credit scores are a slow climb to the top and a steep fall to the bottom.
It is a common misconception that a thicker credit file is worse. Sure, you get dinged modestly for like 3-6months (my scores have never dropped below 720, despite applying for 1-2 new cards fper month in perpetuity), but in the end your ability to borrow at low rates is greatly enhanced by churning & having more approved applications.
Finally, even if high yield checking rates were higher (call it 3%, or even 5%), it would still be better to churn. With churning you are literally printing free money. I probably get about $5000 worth, or more, of value from churning annually (and its tax free; so it equivalent to like $6k+ of pre-tax income from anything else).
In summary, you are leaving a ton of money of the table by drawing your credit lines. I realize that you think you are using financial ingenuity to print money - but there are much better forms of ingenuity.
unfortunately cash advance rates are nearly always around 20% and introductory 0% offers do not apply to cash advances. in fact, the interest starts accruing on cash advances the second you get the cash, not once the bill comes (same for convenience checks). your only chance would be to check limits on "cash back" options at retail stores like WalMart, because those are charged as a purchase instead of an advance, but you have to buy something
good luck getting $50K in cash back son, would be gangster if you did it though
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